Green light given for rail merger
Anita Lam, Denise Tsang and Ng Kang-chung
Shareholders back HK$12b deal
MTR Corporation's minority shareholders overwhelmingly endorsed the merger of the city's two railway operations yesterday - with 82.29 per cent of votes cast in favour of the HK$12 billion deal.
The merger will not only see the MTR Corp absorbing the entire railway operations of the century-old Kowloon-Canton Railway Corporation, it will also mean fare reductions for 2.8 million passengers once the bill authorising the deal is gazetted.
Although fewer than a quarter of those entitled to vote cast ballots, MTR Corp chairman Raymond Chien Kuo-fung said the turnout rate was within expectations.
About 280,000 shareholders - holding 1.26 billion MTR Corp shares or 23.33 per cent of the company - were allowed to vote, but as the voting was based on the number of shares held, it is not known how many shareholders participated.
But Dr Chien said the majority of those attending yesterday's extraordinary general meeting were institutional investors.
The government, which owns 76.67 per cent of the corporation, was not eligible to vote.
Secretary for Transport and Housing Teresa Cheng Yu-wah welcomed the result, saying the deal would bring economic benefits to the community.
The new rail operator, which will adopt the name of MTRC, is expected to start operation by the end of this year once KCRC bond holders give their consent to the deal in a meeting next week. Strong opposition was not expected, the KCRC said.
MTR Corp chief executive Chow Chung-kong said the high endorsement rate reflected shareholders' strong support for the plan, despite the misgivings of a few.
One opponent was activist shareholder David Webb, who earlier vowed to sell all his MTR Corp shares if the deal passed because he saw a bleak future in the company's profit margin once it lost its fare autonomy.
Concessions to be introduced with the merger will include a fare cut of 5 per cent on short journeys and 10 per cent on long trips, and the scrapping of a second boarding charge - a charge ranging from HK$1 to HK$7 imposed on passengers switching from one rail system to the other.
The new reduced fares will be frozen until June 2009, when a fare adjustment mechanism will be introduced pegging any fare increase or decrease to a basket of factors including wages, productivity and inflation.
Under the merger, the MTRC will pay the KCRC an annual rent of HK$750 million for the lease of its railway properties for 50 years. This is on top of a HK$7.79 billion package for a portfolio of eight KCRC properties - widely considered an attractive deal by the market.
Some analysts and surveyors expect growth for the rail operator in the post-merger era will rest on property developments and investments. This would provide a much-needed cushion to the negative impact of the two-year fares freeze, they said.
SK Pang Surveyors managing director Pang Shiu-kee predicted the MTR Corp would enjoy a bigger stream of rental income from investment properties such as shopping malls and offices and the development rights of station properties after grouping KCRC's eight-strong property portfolio under its umbrella.
'The strong economy on the mainland will make the prosperity in Hong Kong's property and stock markets sustainable in the short to medium-term,' he said. 'This will benefit the merged entity, which has a bigger portfolio of shopping malls and land bank.'
Brokerage Morgan Stanley expects the merger to add HK$4.40 to the MTR Corp's net asset value to HK$21 per share.